Is It Time to Buy Chipotle?

Shares in Chipotle Mexican Grill (NYS: CMG) were sent to the pillory for the second time in a month last week, falling 22% in one day alone.

The decline came after the popular burrito chain reported second-quarter earnings that, unlike its burritos, investors clearly found unpalatable.

While current Chipotle shareholders are likely displeased with the collapse, growth investors are foaming at the mouth.

Much ado about nothing?There were two catalysts for the decline in Chipotle's share price.

First, for the quarter, the chain experienced a reduction in customer traffic to its locations. Although we don't have exact numbers, on the quarterly conference call, the company's chief financial officer, John Hartung, stated that: "It's not a significant slowdown, but it is a slowdown."

Second, same-store sales growth, or "comps," a closely watched metric in the industry, came in at 8%. This was less than both the first quarter comp of 12.7% and analysts' expectations of 10% for the second quarter. To add fuel to the bears' fire, moreover, Hartung noted that "unless consumer spending rebounds, we would expect our sales comps to be in the low- to mid-single digits for the remainder of the year."

The market's response to Chipotle's results is probably best be summed up by CNBC's sultan of scream, Jim Cramer, who called it an "apocalyptic quarter" and asked: "What are we supposed to do about it now?"

How about this: Chill outI'm sure you'll be surprised by this, but a closer look at the numbers suggests that Cramer may have overreacted -- hard to believe, right?

Compared to its competitors, Chipotle's numbers are still exceptional. For the second quarter, its same-store sales growth went unmatched, with Seattle-based coffee chain Starbucks (NAS: SBUX) coming in second a full percentage point back. Similarly situated Panera Bread (NAS: PNRA) and Buffalo Wild Wings (NAS: BWLD) weren't within 200 basis points. And McDonald's (NYS: MCD) comps were less than half of Chipotle's.

Not exactly what I'd call "apocalyptic."

Company

Q2 Same-Store Sales

Q2 Revenue Growth

P/E Ratio

Chipotle

8%

20.9%

35.8

Starbucks

7%

13%

29.2

Panera Bread

5.9%

18%

29.2

Buffalo Wild Wings

5.4%

29.7%

27.2

McDonald's

3.6%

0%

16.5

Source: Conference call transcripts, second quarter press releases, and Yahoo! Finance. Starbucks and McDonald's same-store sales are for domestic locations only -- with international locations included, the numbers are 6% and 3.7%, respectively.

Not to mention, Chipotle's top-line growth was unmatched by all but Buffalo Wild Wings. Its restaurant-level operating margins were their highest ever, it opened 55 new restaurants in the quarter, and it has a ton of cash with no debt. On a side note, in terms of the latter two, while I know that Jamie Dimon preaches about JPMorgan Chase's "fortress balance sheet," he ain't got nothing on Chipotle.

And last, but definitely not least, the burrito-slinging restaurant chain still has two potentially massive tricks up its sleeves. In the first case, it still hasn't expanded internationally (Canada excluded). To give you an idea about how lucrative doing so can be, McDonald's looks abroad for well over half of its sales -- Europe alone accounts for 40%.

And in the second case, it has ShopHouse, its Asian-themed pilot restaurant in Washington, DC. Now, I don't know how many of you have eaten here, but I have, and it has potential. The food is great, and it attracts a crowd. Taken together, then, it's no exaggeration to say that these two trends could be huge for the chain and its shareholders.

To sum it upThere's no question that Chipotle's second-quarter results were underwhelming relative to what we've come to expect from the company. But in my opinion, the market overreacted.

Sure, as others have noted, its stock still trades for 36 times earnings -- compared to 44 before the fall. But what do you expect from a company with Chipotle's growth rate, cash-generating abilities, and balance sheet?